New property tax law could cost local governments

May 28, 2006

INDIANAPOLIS (AP) Â? Local leaders say their governments stand to lose millions of dollars in property taxes, forcing them to cut services, under a provision designed to help homeowners and approved at the last minute by the General Assembly.

Lawmakers, however, say the local leaders are overreacting and that rising property values will cancel out any need for the homeowners' tax break.

Under the law passed this year, residential properties would be taxed at a rate no higher than 2 percent of their assessed values. That would be a maximum of $2,000 for a home assessed at $100,000.

Come 2010, however, the law also applies to property owned by businesses, which stand to gain the most from the law because of a provision inserted during the waning days of this year's legislative session. In Marion County, for example, nearly all of the projected $114 million in tax breaks Â? and lost revenue to local governments Â? will go to nonresidential property, according to a preliminary study by the Indianapolis city controller's office.

"This was our biggest fear," Andrea Johnson, deputy director of the Indiana Association of Cities and Towns, told The Indianapolis Star for a story Sunday. Her group supported a reduction in property taxes as long as local governments could raise other taxes to make up for the lost money.

Legislative fiscal analysts are predicting that local governments in urban areas with lots of businesses Â? such as Marion, Lake and St. Joseph counties Â? will be the hardest hit by the tax break. Even in the Indianapolis suburb of Greenwood, Mayor Charles Henderson said he expects to lose more than $80,000 in 2010 Â? enough to pay for two police officers.

"We're paying a heavy penalty here," Henderson said. "And there's no way for relief. Now we just have to wait."

Sen. Luke Kenley, R-Noblesville, said local government leaders are overreacting, but he was hoping for exactly that. He acknowledges inserting the business provision into the law at the last minute to spark public debate. He said he hopes that debate will prompt lawmakers to return next year to devise a long-term solution to property tax relief.

Local government officials pledge to lobby Kenley and other lawmakers for a solution for the 2007 session. But Kenley says there may not be a problem to fix. Since township and county assessors are conducting a reassessment of property, he and other legislators are expecting assessed valuation to grow so much that taxpayers, including businesses, might rarely hit the 2 percent cap.